Angola Dollar Yields Climb After Moody’s Credit Downgrade
Angola Dollar Yields Climb After Moody’s Credit Downgrade
Yields on Angola’s dollar debt climbed to the highest levels in more than a month after Moody’s Investors Service cut the country’s credit rating deeper into junk.
The company downgraded the southwest African nation’s long-term foreign-currency rating to Caa1 from B3, citing weak fiscal prospects due to a depreciating kwanza and low prices for oil, which accounts for more than 90% of its exports and more than a quarter of gross domestic product.
“From an already-weak position, Angola’s fiscal and debt metrics are set to weaken significantly further,” Moody’s analysts including Samar Maziad said in a statement late on Tuesday. “The drop in foreign-currency earnings from lower oil prices is compounded by a structural decline in oil production.”
The decision follows a similar move by Fitch Ratings and comes as Africa’s second-biggest oil exporter is in talks with China about the terms of its debt to the Asian country.
The yield on $1.5 billion of 2025 notes rose for a second day, adding 16 basis points to 12.07%, the highest on a closing basis since Aug. 5. The yield jumped 85 points on Tuesday.
Oil prices fell below $40 a barrel this month, compared with about $70 a barrel before the coronavirus pandemic hit global economic prospects. Angola’s economy will contract by 3.3% in 2020, according to Moody’s, while Fitch sees GDP shrinking 4%.
Much of Angola’s ability to service its debt relies on ongoing talks with Chinese lenders, which account for nearly half of the government’s total external borrowing.
China Talks
Angola expects to reach a deal in the last quarter of the year, postponing $7 billion of payments due between June 2020 and the end of 2022, according to Moody’s. This won’t include debt owed to private lenders, the ratings company said, citing the government.
“Failure to reach a definitive agreement on the profiling of Angola’s external debt would add around $2.5 billion to Angolan external payments both in 2020 and 2021,” Moody’s said. “This would further aggravate the deficit of Angola’s balance of payments, the decline of its official foreign-exchange reserves, and more generally weaken further its external position.”
Angola has also been in talks with the International Monetary Fund to increase lending to $4.5 billion from the previously agreed $3.7 billion, though a deal has been delayed.
Fitch forecast the IMF would conclude a debt sustainability analysis that finds Angola’s debt at a high level of distress but not unsustainable. Together with the ongoing debt re-profiling, this would allow an additional $400 million in IMF lending, according to the ratings company. An expanded IMF program would also unlock $1 billion in extra support from the World Bank and African Development Bank, Fitch said.
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